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Traders are exiting bank ETFs at fastest pace this year

Vildana Hajric and Carolina Wilson, Bloomberg News

Bank towers are shown from Bay Street in Toronto's financial district, on Wednesday, June 16, 2010. Canada's big banks are set to report their latest earnings this week, and while they are poised to benefit from better credit trends in the oil and gas sector and rising U.S. interest rates, headwinds such as housing market concerns and overburdened consumers are expected to weigh them down.
, THE CANADIAN PRESS/Adrien Veczan

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It’s been a tough week for global markets, with banks enduring the biggest losses in U.S. equities.

All 24 stocks in the KBW Bank Index have slumped since last Friday on concern that lower interest rates will squeeze profits. Traders have yanked more than US$1.5 billion from all U.S.-listed exchange-traded funds tracking the financial sector in the week through Aug. 8, the fastest pace this year, according to data compiled by Bloomberg. The Financial Select Sector SPDR Fund, or XLF, has seen eight straight days of outflows, totaling close to US$3 billion.

Financial markets buckled after the U.S.-China trade war escalated, sending stocks lower and spurring a rally in bonds. Earlier this week, a widely watched Treasury-market recession indicator showed the most extreme yield-curve inversion since just before the 2008 crisis. Declining interest rates and the potential for more cuts by the Federal Reserve have fueled concern across Wall Street about how much and how soon banks will suffer.

Profit margins for financials are getting squeezed by lower rates and a flatter yield curve, said Matt Maley, an equity strategist at Miller Tabak + Co. “The fact that we’re seeing more signs of a slowing economy doesn’t help either.”